Part 7 - Appendix 1: Guidance on particular events and whether they constitute a Material Change of Circumstances
Guidance on past events and whether they constituted a Material Change of Circumstances.
Note – the guidance below relates to past events and the approach taken reflects the legislation in place at that time. Changes introduced by the Non-Domestic Rating Act 2023 and the Valuation for Rating (Prescribed Assumptions) (Wales) Regulations 2023 [SI 2023 No. 255 (W.34)] means that some of these circumstances would be approached differently for the 2023 and subsequent lists and may not be MCCs at all. See paragraphs 12.7 to 12.12 of Section 2, Part 7 for details of the impact of this legislation on valuation assumptions and MCCs.
1 London Congestion Charge
1.1 The creation of the Congestion Charge Zone resulted in the physical presence of signs, cameras etc and may also be physically manifest by an observable reduction in traffic. There was a clear link from these to the cause - they told you there had been a legislative change. The situation is analogous to an order preventing traffic going down a road. The valuer therefore needed to envisage the existence of the Congestion Charge Zone at the AVD and consider what the consequences, if any, the imposition of an access charge would have on values. A subsequent increase in charge would not be physically manifest and thus not a MCC - but a physical extension to the zone would be.
1.2 For the 2023 and later lists, in England, the imposition of a congestion charging scheme or extension of such a scheme attributable to legislation, provisions made under legislation or advice/ guidance by a public authority would not be an MCC following the NDR Act 2023. In Wales, it would be a matter disregarded under The Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34)]. So, any valuation impact would only be reflected at revaluation.
2 London terrorist bombings 7 July 2005
2.1 The effect of the London terrorist bombings on the propensity of people to travel within, come to London and to shop may have been physically manifest by a reduction of footfall in shopping streets or noticeably less crowded tube trains. However, there were no observable physical changes to the locality or setting of the hereditaments to be valued. The physically manifest changes in activity did not have a direct and immediately obvious to the eye cause and could only be associated with what were really attitude factors. Therefore, the physical manifestations of reduced footfall etc were to be envisaged as existing at the AVD but divorced from the underlying economic and public perception causes, would not persist in the AVD’s economic climate.
3 World Trade Center
See the approach set out in paragraph 13.27 of RM2:7
3.1 The New York World Trade Center was very clearly not within the locality of, for example, New Bond Street shops or hotels in London. Its destruction was, therefore, not a physical change to the locality. It is difficult to conceive that there were any physical changes in the locality of these properties as a result of the destruction of the WTC but if there were then these physical changes should be taken to have already occurred by the AVD.
3.2 The consequence of the destruction of the WTC was actually a public attitude shift both in the USA and in the UK (a non-physical cause). Any consequent footfall reduction taken back to the AVD should be viewed as unlikely to persist in the AVD world and therefore be disregarded.
3.3 In Re The appeal of Kendrick (VO) 2009 the Lands Tribunal said the VT appeared to have treated the events of 11 September as a matter that was physically manifest. It said this was not possible because it was a past happening, not a matter existing on the material day. While past events could not constitute matters for this purpose, it could see that the consequences of such events, if they endured at the material day, could be said to do so. Thus the attitude of air passengers to air travel as the result of the events of 11 September could, it was prepared to accept, qualify as a sub-paragraph (7)(d) matter, provided, of course, that it was physically manifest in the locality of the hereditament. It found, however, that this attitude was not physically manifest because it was masked by a number of other factors all affecting the footfall and numbers of aeroplane movements.
4 Speed restriction on Lake Windermere
4.1 The local authority has imposed a 10mph restriction on boats on Lake Windermere in Cumbria. Whilst the consequence might have been thought desirable to the majority - a reduction in noise and an increase in tranquillity - local businesspeople noticed a reduction in trade as a wealthy and prone to spend segment of visitors, the power boat fraternity, have departed. The change was physically manifest - greater tranquillity and no fast moving boats on the water - and its cause is direct, i.e. the speed restriction.
4.2 For the 2023 and later lists, in England, the imposition of a speed restriction on boats on Lake Windermere attributable to legislation, provisions made under legislation or advice/ guidance by a public authority would not be an MCC following the NDR Act 2023. In Wales, a similar restriction on it would be a matter disregarded under The Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34)]. So, any valuation impact would only be reflected at revaluation.
5 Foot and Mouth Disease Outbreak 2001
5.1 Valuation officers accepted that the outbreak of FMD in 2001 was an MCC. The disease as such was physically present in many localities, physical signs were present on footpaths etc and in some areas carcass pyres and graves were physically observable and manifest. The cause would have been clear to the hypothetical landlord and prospective tenant standing outside a hereditament. A and D notices to stop businesses trading together with the orders closing footpaths etc were legal matters affecting the physical enjoyment of properties.
5.2 For the 2023 and later lists, in England, the imposition of orders closing footpaths attributable to legislation, provisions made under legislation or advice/ guidance by a public authority would not be an MCC following the NDR Act 2023. In Wales, a similar restriction on it would be a matter disregarded under The Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34)]. So, any valuation impact would only be reflected at revaluation.
6 Olympic Bid
6.1 On 6 July 2006 the International Olympic Committee announced that London would again host the Games: this time in 2012. The announcement itself is not a MCC being similar to the draft compulsory order announcement in Prodorite or the creation of the enterprise zone in Addis. As with other MCCs it is necessary to show there has been a value significant MCC within the paragraphs of Schedule 6 para 2 (7).
6.2 The announcement itself did not affect the physical state of the locality or the use and occupation of premises in the locality. It is not in itself something covered by Schedule 6 para 2(7).
6.3 As re-development, vacation of premises, redevelopment etc occurred there were physical changes to the locality which did constitute MCCs. These were considered in the normal way as with any other redevelopment scheme.
7 Smoking Ban
7.1 From 2 April 2007 in Wales and 1 July 2007 in England a complete ban on smoking in enclosed public places came into force. The regulations under the Health Act 2006 made it illegal to smoke in virtually all enclosed and substantially enclosed (as defined) public places, workplaces and work vehicles. This includes permanent and temporary structures such as tents and marquees. The law applies to anything that can be smoked including water pipes (such as hookah pipes) and herbal cigarettes. Managers of smoke free premises have legal responsibilities to prevent smoking and ensure no-smoking signs are displayed. These signs must be a minimum of A5 size and must be displayed in a prominent position at every entrance to the smoke free premises. The sign must contain the international ‘no-smoking’ symbol at least 70mm in diameter and carry the following words “No Smoking. It is against the law to smoke in these premises”. It is the local councils who are responsible for enforcing this new law.
7.2 Smoking was an activity undertaken by customers at Bingo Clubs, Public Houses, Members Clubs and many other hereditaments including offices. The smoking ban was an MCC because it affected the physical enjoyment of hereditaments.
7.3 For the 2023 and later lists, in England, the imposition of a smoking ban attributable to legislation, provisions made under legislation or advice/ guidance by a public authority would not be an MCC following the NDR Act 2023. In Wales, it would be a matter disregarded under The Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34)]. So, any valuation impact would only be reflected at revaluation.
8 Impact of flooding on rating assessments
8.1 The incidence of flooding and MCC’s was considered in the Appeal of Jo Moore (VO) [2018] UKUT 0324 (LC). This concerned a large ‘car supermarket’ at Hessle Dock on the Humber Estuary. The site flooded on 5th Dec 2013 resulting in substantial damage to stored cars. As a consequence, the property could no longer be insured against the ‘flood risk’ and the landlord agreed a 25% rent reduction. An MCC proposal on 30th March 2015 sought a reduced RV with effect from 6th Dec 2013 citing the flood of Dec 2013, its impact on insurance and the resulting rent reduction. No flooding existed at the Material Day of 30th March 2015. The UT reviewed the issues raised against the physical matters set out in Sch.6 para 2(7) and determined neither the rent reduction or reallocation of the property so that it fell within a flood zone, resulting in a commercial insurers decision to refuse insurance cover, were matters to be reflected. The decision confirmed that changes in the level of rent, however these result, are considered as part of revaluations and do not give rise to a material change of circumstances. Similarly, nothing was physically observable on the ground in relation to the flood zone allocation. The heightened risk of flooding did not constitute an MCC and the appeal was thus held to be invalid.
8.2 If flood waters damage the hereditament this will be a change to the physical state of the building (para 2(7)(a)) and/ or the physical enjoyment of the building (para 2(7)(aa)) and so an MCC. There is no exceptional treatment of buildings damaged by flooding. Guidance on the approach to buildings in disrepair irrespective of the cause is contained in RM S.2 Pt.8.
8.3 Where flooding is a periodical occurrence the AVD rental evidence will already reflect the flooding risk. Where flooding has not previously occurred, or has not happened for many years, the attitude of prospective tenants in the real world may be altered by a recent occurrence of flooding. Providing the flooding occurs before the AVD, this attitude should be reflected in valuations for the next revaluation. It should only be reflected in the present assessments if it can be seen as coming within the para 2(7) matters.
8.4 Flooding, as such, is not considered to be a change in the physical state of the locality. “Physical state” connotes some degree of permanent change as opposed to transient phenomena. Flooding may be present for a few days only and is no more a change to the physical state of the locality than are wet pavements after rain, a heavy snowfall or a sunny day, even if the phenomenon can be very much more noticeable. Changes resulting from flooding such as swept away bridges or banks, whilst un-remedied, are a change to the physical state of the locality.
8.5 On the other hand, floodwaters can be seen as the physical manifestation of a marginal risk. They manifest the risk of flooding in a locality and clearly indicate, whilst present, there is a modern-day risk of flooding. Proposals made during the time of flooding, providing the normal requirements of a valid proposal are met, can therefore be valid MCC proposals. In valuing for the proposal any change in attitude on behalf of prospective tenants that would have occurred at the AVD due to any heightened expectation of flooding can be taken into account. However, when the flood has ended any subsequent proposal made in respect of the flood or any other purported MCC matter cannot take the heightened risk of flooding into account as it is not then physically manifest on the material day. The Material Day in respect of a VO alteration is the day the relevant circumstances first arose and consequently, where the VO accepts that during a period of flooding the rateable value of a hereditament was affected, it is possible for the VO to make a retrospective alteration for the relevant period reflecting those matters outlined above.
9 Proposal citing the ‘credit crunch’
9.1 Proposals asking for a reduction on the grounds solely of the Autumn 2008 banking crisis were not valid since they failed to mention any of the matters in Schedule 6 para. 2(7) of the LGFA 1988. These are covered in para 12.4 above and in RM S.2 Pt. 4 para. 4.
9.2 The “credit crunch” was an economic, not physical matter and, as such, was not a MCC. Some proposals actually cited a physical change or something is ‘physically manifest’ such as a noticeable change in footfall and werevalid. When the VO dealt with such proposals, only the physical matters were taken back to AVD and not any economic or other non-physical factors.
10 Proposals citing an increase in the number of vacant shop units in a street or offices in a locality
10.1 The downturn in the economy in 2008 resulted in a number of prominent retailers ceasing to trade and vacating units in the High Street. According to Experian, there were, at the start of 2009, nationally 90,000 retail units vacant, but this figure was predicted to rise to 135,000 during the year.
10.2 An increase in the number of vacant units in a shopping street is likely to constitute a MCC on the grounds of it being a change in the ‘use and occupation of other premises situated in the locality of the hereditament’. Therefore, in similar situations proposals can validly be made on this ground though they will need to specify an actual change and the date it occurred rather than a vague mention of an unspecified increase in vacancy.
10.3 In considering the effect of the material change, the physical circumstances at the material day have to be carried back and imagined to exist at the AVD (1 April 2015 for 2017 rating lists and 1 April 2021 for 2023 lists). In England, the material day for a proposal relating to the 2017 and later lists in the date of the Check confirmation. For the 2010 and earlier lists, the material day was the day the proposal was served on the VO. In Wales, the material day for a proposal relating to the 2023 and later lists in the date of the Check confirmation. For the 2017 and earlier lists, the material day was the day the proposal was served on the VO. The question the valuer has to ask is: ‘had these shop(s) been vacant at the AVD would this have affected rental values?’. It is likely that transposing back a few extra vacant shops would not normally affect the AVD market as it would merely have supplied a few extra units available to rent where there was already demand for them. Where a closure relates to shop chains that have failed, it is likely that in most cases the company that did occupy it would have bid for it at the AVD. The existence of these companies is part of the AVD world and looking at the particular high street in question it is likely they would have wished to secure representation and bid for a suitable unit. The units are likely to have been very well suited to their particular requirements. Of course, looking at a particular shop and considering AVD demand is no different from the normal valuation process. In valuing a particular shop it has always, like any other hereditament, been viewed as vacant and to let at the AVD.
10.4 Where a shopping street experiences a particularly high level of vacancy compared to the AVD position this may justify the conclusion that the AVD value would be affected. Whilst a few extra vacant units might readily have let at the AVD the existence of a large number of vacant units might surprise and cause a prospective tenant to pause in making a bid. Strong AVD demand might well overcome this but if one conceives of a small parade of 10 shops all occupied at the AVD but, at the material day, 5 are vacant it is easy to see how such a situation is likely to result in lower rental bids being made. Not only is supply on the market and competition to achieve lettings high but there is also a visual appearance of low demand and failure.
10.5 Similarly a downturn in the economy may result in office space being vacated or new space not being let. There are two factors here:
- vacation of existing space in the locality
- new space being constructed in the locality which may or may not become occupied
10.6 The construction of new office buildings nearby is likely to constitute a change in the physical state of the locality and be a MCC. Proposals can validly be made on this ground. Similarly the vacation of existing space can be a MCC by virtue of it being a change in the ‘use and occupation of other premises situated in the locality of the hereditament’.
10.7 The valuation effect of a change in the level of general office occupancy is unlikely to be significant because, taking the physical circumstances of occupancy back to the AVD, the actual AVD demand would have resulted in the space being occupied had it actually been vacant at the AVD.
10.8 In considering RVs, new offices buildings constructed in the locality post AVD have to be viewed as already constructed at the AVD because they are MCCs. The construction of new offices may result in increased supply, though this needs to be offset against any demolitions of offices that have taken place. It may be that had there been an increased supply at the AVD, assuming the new office buildings had existed then, this could have affected rental levels at the AVD and therefore justify reduced RVs. When considering whether an MCC has had an impact, it is important to take all the mentioned matters as they are at the material day. This will include reflecting the use or occupation of other premises situated in the locality. It could be that vacancy rates at the material day are not significantly different to those that existed at the compilation date or AVD. If this is the case, it could be argued that the increased supply does not depress values when considered alongside the use and occupation of premises in the locality. In considering AVD demand account also has to be taken of any increased demand resulting from other physical changes in the locality.
10.9 This is a complex matter which also needs to take into account changes in ratios of office quality e.g. a change in the proportion of modern high quality space compared to older, e.g. 1970’s space and the differing demand for different types of office space, e.g. the markets for high quality large modern office space and for small office suites over shops are completely different.
11 ‘COVID-19’ – the Coronavirus SARS-COV-2 Pandemic
11.1 From early in 2020 a new respiratory virus believed to originate in China emerged in the UK and spread rapidly around the world as a global pandemic. In common with most governments the UK authorities implemented a series of measures to limit the incidence and spread of the virus, and many restricted the use of property and the freedom of movement of people. A national ‘lockdown’ was implemented from 23 March 2020, with people required to work from home wherever possible and many businesses required to cease trading.
11.2 The VOA accepted that many of these restrictions were changes in the ‘matters’ set out in Paragraph 2(7) of Schedule 6 to the Local Government Finance Act and gave rise to potential material changes of circumstances.
11.3 Because of the widespread effect of the restrictions the government decided to legislate to prevent such MCCs affecting rateable values.
11.4 On 25 March 2021 the Valuation for Rating (Coronavirus) (England) Regulations 2021 came into effect and required that, for the purposes of determining a rateable value for any day thereafter, the government response to COVID-19 was to be assumed to have not taken place. The government also announced its intention to legislate to apply a similar assumption retrospectively to 1 April 2017.
11.5 In due course on 15 December 2021 the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 came into force for both England and Wales revoking the earlier regulations. It applied an assumption to the process of identifying the existence of a hereditament and its valuation. The Act adopts different language to the regulations and goes slightly wider by applying to both determination of RV for a 2017 list and whether or not a hereditament ought to be shown in a list (for any list). These are defined as ‘relevant determinations’.
11.6 For a relevant determination no account is to be taken of any matter directly or indirectly attributable to coronavirus – examples are given in section 1(6) of the Act as including anything done to:
- comply with legislation concerning, or for reasons relating to, the incidence or spread of the virus
- comply with advice or guidance of a public authority.
11.7 This means that the legal or other closure of premises or limitations of their use, social-distancing requirements, work-from-home guidance and restrictions on public gatherings etc. are all to be ignored for both valuation purposes and when deciding whether a hereditament should be shown in a list.
11.8 Exceptions from the relevant determination definition are when deciding:
- whether some part is or is not domestic property
- whether some part is or is not exempt from rating
11.9 This means that changes between domestic and non-domestic, or exempt use, of any part can be taken into account, even if it was directly caused by the COVID-19 measures.
11.10 Further exceptions from the requirement not to take account of matters attributable to coronavirus are:
(a) The physical state of the hereditament,
So extensions/demolitions/alterations etc. continue to be reflected, including where such a change affects the mode or category of occupation, such as conversion of a restaurant to general retail by stripping out the kitchens and customer WCs.
(b) The quantity of minerals in or extracted from the hereditament,
(c) The quantity of refuse or waste material deposited,
So annual revisions MCCs will still reflect the actual quantities even if these have changed directly due to coronavirus – this is preserving an exception to the normal rules.
11.11 A change in the mode or category of occupation that is attributable to coronavirus but is not also due to a change in the physical state is not an exception to the rule and must be ignored for valuation purposes. Therefore, where a hereditament is used for a different purpose because of the coronavirus pandemic but no physical changes are made to it then the change of use cannot affect the valuation. For example, a village hall that is used as a vaccination centre by installing portable screens and tables is still to be valued as a village hall.
11.12 The Act applies retrospectively to any outstanding Challenge/Proposal cases for 2017 lists and pre-existing or newly made proposals cannot have effect.
11.13 The Act does not change the definition of a Material Change of Circumstances and it does not make such proposals invalid, incomplete or unlawful. It simply requires the valuer (including a tribunal) to ignore the effect of coronavirus when determining the value to be shown in a 2017 list, or the existence, of a hereditament (in any list).
11.14 The extent to which the Act applied to matters indirectly attributable to Coronavirus was considered by the Valuation Tribunal England in Vistra International Expansion Ltd. & Ors v Dawn Bunyan (VO) in its decision dated 24 May 2022 The VTE President and Vice Presidents found that the legislation was drafted in very wide terms to be: “…all encompassing and to cover every potential eventuality there could possibly be relating either directly or indirectly to coronavirus…“. The list of matters in the Act that are to be excluded from affecting the rateable value is non-exhaustive and not limited to factors similar to those listed.
11.15 The 2021 Act was in the most part specific to the 2017 lists, so under the powers conferred by para 2(8) of Schedule 6 of the Local Government Finance Act 1988 both England and Wales have introduced respective regulations coming into force 1 April 2023 in relation to the 2023 rating lists.
11.16 In England, The Valuation for Rating (Coronavirus) (England) Regulations 2023 [SI 2023 No. 240] came into effect 1 April 2023 and established that certain factors concerning coronavirus are assumed to remain the same as they were on 1 April 2021. Factors are legislation; provisions made under and given effect by legislation; advice or guidance given by a public authority. Anything done by a person on or after 1 April 2021 with a view to complying with such legislation, advice or guidance, should be assumed not to have occurred.
11.17 The regulations provide exceptions in a similar manner to the 2021 Act (see para 11.10 above) and where any of those factors affect the physical state of the hereditament or its locality; the quantity of minerals or other substances extracted from the hereditament; or the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament, these may be taken into account when considering if a material change of circumstances has occurred.
11.18 The regulations maintain government policy that coronavirus should not lead to a change in rateable value between revaluations but apply only in relation to England.
11.19 In Wales, The Valuation for Rating (Prescribed Assumptions) (Wales) Regulations 2023 [SI 2023 No. 255 (W.34)] came into force 1 April 2023. These go further than the counterpart regulations in England. They provide that legislation, provisions made under and given effect by legislation, advice or guidance given by a public authority; and anything done or not done on or after 1 April 2021 with a view to compliance with such legislation, provisions made under and given effect by legislation, advice, or guidance, should be assumed to have not occurred. But whereas in England the regulations are specifically concerned with coronavirus, in Wales the regulations make no reference to coronavirus. So, whilst coronavirus measures will be included, the Welsh regulations will encompass any legislation and advice or measures emanating from such legislation, which affect a “relevant matter”. The relevant matters are:
- matters affecting the physical enjoyment of the hereditament
- the mode or category of occupation of the hereditament
- matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there
- the use or occupation of other premises situated in the locality of the hereditament
See paragraphs 1.4 and 12.7 to 12.12 for more information as to how these regulations and the Non-Domestic Rating Act 2023 affect valuation assumptions and prevent certain changes from being MCCs.